The Brave New World of Mortgage Servicing

By Iseley, Wes | Mortgage Banking, November 2013 | Go to article overview

The Brave New World of Mortgage Servicing


Iseley, Wes, Mortgage Banking


OVER THE PAST SEVERAL YEARS, since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the various settlements regarding foreclosure practices, the loan servicing industry has been the subject of intense focus, including a range of new legal and operational requirements. Some of the changes that have been made are quite positive for both consumers and investors, while others are often duplicative and simply add cost and regulatory overhead.

Let's take a look at some of the rules and regulations to highlight some of the issues the servicing industry is facing as 2014 approaches and many of these new strictures take effect.

Perhaps the most positive development in the world of servicing is the new attention to consumers who are having problems paying their mortgages.

Servicers now have an explicit obligation to not only maximize return to the note holder, but also to evaluate available foreclosure-avoidance options for the borrower. This is something that we at Carrington have welcomed because we were one of the first servicers in the industry to focus on modifications as a means of addressing loan defaults.

As my colleague John Alkire noted in "Blazing Trails in Servicing," his article in the August issue of Mortgage Banking, Carrington recognized early on that in order to effectively minimize losses on our servicing portfolio, we needed to approach the needs of distressed borrowers in a way that most servicers were not prepared to embrace--much less implement--operationally.

The new normative standards for loan servicers dealing with distressed borrowers were already embedded in the operations of "high-touch" servicers such as Carrington and other firms that traditionally focused on distressed loans.

While most servicers focused on collections and foreclosure proceedings, we shifted our focus to concentrate heavily on communication with the borrower. We quickly ramped up our processes to find affordable solutions that kept borrowers in their homes--long before loan modifications became common practice.

A single point of contact and an emphasis on first attempting to keep the debtor in the house are now basic requirements for all loan servicers nationally. We have long recognized that keeping families in their homes is a win-win situation for the investor and homeowner alike, so aligning those interests with the interests of regulators should have been a relatively simple matter. Sadly, life is not so simple.

While the new industry requirements focused on helping distressed borrowers are welcome news--and perhaps overdue--the approach of regulators to enforcing these requirements has been less than organized and less than consistent.

Today we have at least three competing groups of federal regulators focused on enforcing the various new obligations in the world of loan servicing; The Consumer Financial Protection Bureau (CFPB), which regulates both banks and non-banks; the Federal Housing Finance Agency (FHFA) and Federal Housing Administration (FHA), which are focused on the various federal housing finance agencies; and the federal bank regulators, which are focused on commercial banks.

* First, the CFPB has promulgated regulations regarding loan servicing pursuant to Dodd-Frank. The agency is focused primarily on consumer protection, but the CFPB has extended its reach "to address potential risks to consumers that may arise in connection with transfers of servicing," according to a Feb. …

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